The Pound looked to shake off political turmoil in the U.K. as signs that the housing sector is improving helped bring forex traders focus back to improving fundamentals and send the GBP/USD to as high as 1.6180.
[B]Talking Points
• Japanese Yen: Consolidating Above 98.00
• Pound: Housing Sector Shows Signs of Stabilizing
• Euro: German Exports, IP Plunge
• US Dollar: Wholesale Inventories On Tap
[/B][U][B]
Pound Losing Steam After Gains Following Positive Housing Data, Euro Weighed By Weak German Output.[/B][/U]
The Pound looked to shake off political turmoil in the U.K. as signs that the housing sector is improving helped bring forex traders focus back to improving fundamentals and send the GBP/USD to as high as 1.6180. Indeed, the RICS house improved from -58.7% to -44.1% which was the highest reading since November, 2007. An improvement in the DCLG house price indicator from -13.6% to -13% bolstered the case that the sector is stabilizing which had been mired in its worst downturn since the Great Depression. However, BoE’s deputy governor for financial stability Paul Tucker warned that the medium term outlook for the economy remains uncertain took the steam out of Sterling bulls and sent the GBPUSD back below 1.6100.
The MPC announced yesterday that it was considering extending its asset purchase program to commercial paper which will help provide additional liquidity to the market. Last month’s improvement in mortgage approvals was a sign that the central bank’s efforts to spur lending are starting to gain traction and if the housing sector can begin to show stronger signs of improvement then we may see consumer optimism grow. Prime Minister Gordon Brown has regain control of the Labour party which may put an end to the political concerns which sunk sterling to end last week. Therefore, if markets continue to focus on improving fundamentals for the country then sterling bullish sentiment may return. The GBP/USD’s inability to break below the 38.2% Fibo of 1.4397-1.6664 yesterday could be a sign that more upside potential remains. However, risk appetite which has been the main driver of the pair’s recent gains and is showing signs of waning and may lead to some short-term range bound price action.
The Euro has started to turn lower after reaching as high as 1.3968 during overnight trading despite the German trade balance showing a significant drop in exports. Europe’s largest economy saw a 4.8% decline in demand for its products in April which erased a brief pick up in March. However, a 5.8% drop in imports led to a trade surplus of 9.4 billion which beat expectations of 9.3 billion. Meanwhile, German industrial production fell by 1.9% in April versus expectations of a 0.3% gain which has added to heavy Euro trading. The ECB’s Likanen was on the wires today cautioning of becoming too optimistic as any recovery for the global market will be slow. He also signaled that the central bank hasn’t put in a floor on interest rates which will add to speculation that more easing could be ahead. The central bank has been reluctant to cut rates below 1.00% and the fact that they are considering such a move may be a sign that downside risk remain for the economy. The EURUSD is back below the 20-Day SMA at 1.3906 leaving the 38.2% Fibo of 1.2884-1.4340 at 1.3787 as a the next level of support.
The U.S. dollar started to come under pressure as risk appetite has begun to pick up during European trading, a signal that greenback flows are still being driven by risks winds. A light economic docket will leave price action to the broader themes as wholesale inventories and two minor sentiment readings are on tap. The 1.1% drop in wholesale inventories shows that producers are remaining lean as a stabilizing economy hasn’t translated into a pick up in demand. However, if we see a pick up in retail sales on Thursday then we could take the view that demand has helped dry up reserves which would add to the case that a recovery is under way. U.S. equity futures have turned negative, a sign that risk aversion is returning which could bring dollar support.
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Forex Trading Weekly Forecast - 06.08.09
To discuss this report contact John Rivera Currency Analyst: <jrivera@fxcm.com>
